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Egypt’s Long-Term Fundamentals Strengthened by Revolution

The global competitiveness of the Arab world's most diverse economy is set to rise with the decline in long-term political risk

Monday, April 11, 2011

The economic fundamentals that saw Egypt help lead global growth during the financial crisis of 2008-09 will only be further enhanced in the long-term by democratic reforms in the Arab world’s most populous nation, a senior private equity leader told Private Equity International’s Middle East Forum in Dubai today.

“Egypt’s competitiveness in the global economy — as an export and manufacturing hub as well as in its capacity as a destination for foreign capital — will only rise as long-term political risk is mitigated by greater democracy,” said Hisham El-Khazindar, Managing Director and Co-Founder of Citadel Capital (CCAP.CA on the Egyptian Exchange), the leading private equity firm in the Middle East and Africa with US$ 8.6 billion in investments under control spanning 14 countries and 15 industries.

El-Khazindar’s comments were delivered at an open forum on North Africa held this afternoon.

“While popular uprisings in the MENA region will lead to increasing global energy prices, a weakening of local currencies and reduced levels of FDI in the short-term, the simple fact is that the positive fundamentals that created the region’s compelling investment opportunities in the past remain intact and could lead to tremendous opportunities once the situation stabilizes.”

In the short-to-medium-term, El-Khazindar added, “We see that we are on the right side of macro trends. In Egypt potential devaluation of the currencies will benefit many of our platform investments, which have dollar or dollar-linked revenues, local costs and local currency debt. Meanwhile, widening budget deficits in an environment marked by high oil prices and still-rising commodity prices will accelerate liberalization of the energy sector and the elimination of subsidies, particularly on fuel, further supporting key Citadel Capital investment themes.”

Also taking the stage in Dubai was Citadel Capital Managing Director Stephen Murphy, who took the affirmative in PEI’s “Great Debate,” arguing that, “This House believes deal-by-deal investing and not through a fund is the only viable approach to private equity investing in the region.”

“It isn’t, of course,” said Murphy. “Indeed, I’ve spend the last three years raising funds from sophisticated institutional LPs for Citadel Capital’s first standing funds simply because not all limited partners have the flexibility — or appetite — to enter one of our 19 current Opportunity-Specific Funds (OSFs).”

Citadel Capital’s Africa and MENA Joint Investment Funds had a joint US$ 140 million first close in 2010 and are targeting a combined US$ 500 million final size.

Limited partners in the JIFs will invest US$ 2 for every US$ 1 Citadel Capital will invest in compliant opportunities. The JIFs have already invested in Citadel Capital Platform Companies Africa Railways, which among other investments controls the national railways of Kenya and Uganda, and Tawazon, a leading regional solid waste manager. Both Africa Railways and Tawazon are controlled by Citadel Capital-raised OSFs.

Leading international institutional investors participating in the first close of the JIFs included the International Finance Corporation (IFC), the African Development Bank (AfDB), the Netherlands Development Finance Company (FMO), Société de Promotion et de Participation Pour la Coopération Economique (Proparco), Deutsche Investitions–und Entwicklungsgesellschaft mbH (DEG), and the European Investment Bank (EIB).

“The flexibility inherent in having both OSFs and standing funds will be an important differentiator in the competition for capital in the coming period,” Murphy concluded, “but there is no substitute for the proven ability to generate strong returns for investors, which Citadel Capital has done by generating cash returns to shareholders and LPs of US$ 2.5 billion on investments of just US$ 650 million.”

—Ends—

Citadel Capital (CCAP.CA on the Egyptian Stock Exchange) is the leading private equity firm in the Middle East and Africa. Citadel Capital focuses on building regional platforms in select industries through acquisitions, turnarounds, and greenfields executed via Opportunity-Specific Funds. The firm’s 19 OSFs now control Platform Companies with investments worth more than US$ 8.6 billion in 14 countries spanning 15 industries, including mining, cement, transportation, food and energy. Since 2004, Citadel Capital has generated more than US$ 2.5 billion in cash returns to its co-investors and shareholders (on investments of US$ 650 million), more than any other private equity firm in the region. Citadel Capital is the largest private equity firm in Africa by PE assets under management (2005-2010, as ranked by Private Equity International). For more information, please visit www.citadelcapital.com.